Loan Calculator
Before signing a loan agreement you should know two numbers: the monthly payment and the total interest you will pay over the life of the loan. This loan calculator computes both from the amount, annual rate and term using the standard amortization formula used by banks.
Adjust the term to see the trade-off every borrower faces: a longer term lowers the monthly payment but increases the total interest, often dramatically.
Enter valid values to see the results.
Formula
This is the annuity (equal payment) formula used for most personal loans, auto loans and mortgages. Each payment covers the interest on the remaining balance first; the rest reduces the principal. With a 0% rate the payment is simply amount ÷ months.
What you need
- Loan amount: the money you actually receive, after any down payment or fees rolled into the loan.
- Annual rate: use the nominal annual percentage rate (APR if it includes fees) quoted by the lender — not the monthly rate.
- Term: the full repayment period. This calculator accepts years; 6 months = 0.5 years.
Worked example
Practical tips
- Compare loans on total interest, not just the monthly payment — a “cheaper” monthly payment often costs more overall.
- Even 1% less on the rate saves hundreds: on a $25,000 / 5-year loan, dropping from 10% to 9% saves about $350.
- Check whether the lender charges an origination fee; if it is deducted from the amount, your effective rate is higher than quoted.
- If there is no prepayment penalty, paying a little extra each month shortens the loan and cuts interest sharply.
Monthly payment per $10,000 borrowed
| Rate | 3 years | 5 years | 10 years |
|---|---|---|---|
| 5% | $299.71 | $188.71 | $106.07 |
| 8% | $313.36 | $202.76 | $121.33 |
| 12% | $332.14 | $222.44 | $143.47 |
| 18% | $361.52 | $253.93 | $180.19 |
Common mistakes
- 1 Confusing the monthly rate with the annual rate — 1% per month is about 12.7% per year, not 12%.
- 2 Ignoring fees bundled into the loan, which raise the real cost above the nominal rate.
- 3 Choosing the longest term by default: doubling the term does not halve the payment, but it can nearly double the interest.
Frequently asked questions
How is the monthly loan payment calculated?
With the annuity formula: payment = P × r / (1 − (1 + r)⁻ⁿ), where P is the principal, r is the monthly rate (annual rate ÷ 12) and n is the number of months. It produces equal payments that exactly pay off the loan.
What is the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal. APR (annual percentage rate) adds mandatory fees, so it reflects the true yearly cost. Compare loans by APR when fees differ.
Is it better to take a shorter or longer loan term?
Shorter terms have higher monthly payments but much lower total interest. Choose the shortest term whose payment fits your budget with room to spare.
Does this calculator work for mortgages and car loans?
The math is identical for any fixed-rate amortizing loan. For home and auto specifics (down payments, trade-ins) use the dedicated Mortgage and Car Loan calculators.